Corn supply dropping most since 1995 signals rally

U.S. corn supplies, the world’s biggest, are dropping at the fastest pace in 17 years as drought damage exceeds government forecasts and five months of declining prices spur demand from livestock producers.

Inventories on Dec. 1 were 15 percent lower than a year earlier at 8.22 billion bushels (208.8 million metric tons), the smallest post-harvest stockpile since 2003, according to the average of 26 analyst estimates compiled by Bloomberg. Goldman Sachs Group Inc., Morgan Stanley and Macquarie Group Ltd. expect prices to rebound at least 17 percent to $8.14 a bushel in 2013.

While futures surged to a record $8.49 in August as the drought spread, they then tumbled 18 percent as U.S. exports slowed and buyers sought cheaper supply from Brazil and Ukraine. Prices will rebound because the government overestimated the harvest and probably will lower the figure when it reports tomorrow, the analysts said. The U.S. Department of Agriculture already expects global stockpiles on Oct. 1 to be the smallest relative to consumption since 1974.

“Consumers have become too complacent waiting for lower prices,” said Christopher Gadd, an analyst at Macquarie in London who expects prices to reach $8.50 this year. “The story going forward will be an improvement in U.S. exports. Buyers have nowhere else to turn.”

Corn rose as much as 68 percent from June 15 to mid-August on the Chicago Board of Trade before retreating. It ended the year up 8 percent, compared with a 0.3 percent gain in the Standard & Poor’s GSCI gauge of 24 commodities. The MSCI All- Country World Index of equities jumped 13 percent. A Bank of America Corp. index shows Treasuries returned 2.2 percent.

Exceptional Drought

About 55 percent of the nine-state Midwest region where most of the nation’s crop is grown had moderate to exceptional drought on Jan. 1, compared with 13 percent a year earlier, according to the U.S. Drought Monitor. In Nebraska, the third- largest producer, extreme to exceptional conditions covered 96 percent of the state, compared with none a year earlier.

The worst U.S. crop conditions since at least 1988 probably reduced the area harvested to 89.6 percent of what was planted, according to the average of 31 analyst estimates. Farmers reaped 10.65 billion bushels, a 14 percent decline that exceeds the 13 percent drop forecast by the USDA on Dec. 11. Domestic supply before the 2013 harvest will retreat to the lowest since 1996, the survey showed.